Introduction
Setting fair wage standards is a key responsibility of employers in India. All businesses, whether startups, small businesses, or large enterprises, must set wages that comply with the legal mandates and are competitive in their industry. Given the many laws there are (the Code on Wages, Minimum Wages Act, Equal Remuneration Act, etc.), navigating the legal landscape can be complex.
But what does setting fair wage standards mean? This is more than just the ability to pay the minimum wage; it’s about equity, wage withholdings, wage laws, gender equity, and preventing legal risks. Non-compliance with wage regulations can prove costly for employers in terms of financial penalties, reputational loss, and employee dissatisfaction.
In this article, we’ll outline the legal framework around how to set reasonable wages, discuss and explore employer requirements, and highlight the best practices to keep your business compliant and employees motivated. With these principles, it will help to avoid any legal issues and attract and retain the best talent in your company.
The Legal Framework for Wages in India
India has a defined wage regulation structure, which is regulated under different laws. Below are the vital acts every employee should know:
1. The Code on Wages, 2019
- The Code on Wages, 2019, consolidates four major labour laws:
- Minimum Wages Act, 1948Payment of Wages Act, 1936Equal Remuneration Act, 1976
- Bonus Payment Act, 1965
- Sets a universal wage standard across all industries.
- Requires immediate payment of wages and mandates minimum wage payments in all sectors.
2. The Minimum Wages Act, 1948
- This Act ensures that no worker is underpaid by setting minimum wages across various sectors. State governments revise wage slabs based on:
- The level of skill (Unskilled, Semi-skilled, Skilled, Highly Skilled)
- Office Type (Govt, Private, Contractual, Seasonal)
- Location (Urban, Semi-Urban, Rural)3
3. The Payment of Wages Act, 1936
- Regulates salary payout schedules, providing that wages are paid:
- By the 7th of each month for establishments employing less than 1000 employees.
- Before the 10th of every month for Institutions with +1000 employees.
- It also restricts wage deductions unless legally permitted.
4. The Equal Remuneration Act, 1976
- This Act ensures equal pay for equal work, regardless of gender.
- No discrimination in hiring, promotion, or wage allocation between male and female workers.
5. Impact of the Wage Code on Employers
- The Wage Code streamlines wage structures and provides uniform methods of wage calculations across sectors.
- Employers need to review and align their wage policies with the new mandate.
Employer Obligations in Wage Determination
When setting wages, employers must ensure they comply with the following guidelines to maintain fairness and legal alignment.
1. Adhering to Minimum Wage Laws
- Employers shall pay wages not less than the prescribed minimum wage.
- Review and periodically update state-specific minimum wage slabs.
2. A Move Towards a Transparent Wage System
- Components of Wage Include:
- Basic salary
- Dearness Allowance (DA)
- House Rent Allowance (HRA)
- Conveyance Allowance
- Contributions to the Employees’ Provident Fund (EPF)
- Partial Medical and Special Allowances
3. Avoiding Wage Discrimination
- Equal pay for equal jobs is implemented regardless of gender, caste, religion, or any background.
- Compliance with the Equal Remuneration Act helps avoid legal complications.
4. Time and Legal Payment of Wages
- Cause for potential legal penalties under the Payment of Wages Act; delayed salaries can cause.
- Employers shall pay employees’ salaries timely manner without any illegal deductions.
Minimum Wage vs. Living Wage: How Much Should They Pay?
Many employers grapple with whether paying the legal minimum wage is sufficient or whether they should aim for a living wage.
1. Minimum Wage Vs Living Wage
- Minimum Wage: The lowest wage that an employer can legally pay.
- Living Wage: Enough to meet the most basic human needs of an employee (food, housing, healthcare, and education).
2. State-Wise Minimum Wage in India
- Different states and territories have different rates depending on the cost of living and the types of employment.
- Employers must update wage structures per revised minimum wage notifications.
3. Consequences of Paying Below Minimum Wage
- Claim Your employer’s legal actions.
- Strikes, employee dissatisfaction, and high turnover.
- Reputational and legal damage
To maintain workforce stability, the employer must not pay only the minimum wage but rather a living wage.
Equal Pay for Equal Work: Gender Pay Parity in India
Wage gaps exist as per law in India. Employers should ensure:
- There are no pay gaps based on gender.
- Use clear benchmarking for salary standards.
- Compliance is strictly with the Equal Remuneration Act, 1976.
Legal Consequences of Wage Discrimination
- Massive fines and demands for compensation.
- Employer branding and damage to reputation.
Pay and Supplements for Overtime
The Factories Act of 1948 requires an employer to pay wages for overtime, as mentioned in the section given below:
- Overtime must be compensated at double the normal wage rate.
- Contracts Of Employment should define bonus, incentive, or performance-linked pay.
Best Practices for Employers in Setting Fair Wages
Both employers and employees have a critical role to play in empowering fair wage practices within their companies. All these inconveniences could be avoided simply by taking adequate care in ensuring employees are paid fairly and on time; in addition to all that, fair employee compensation also has the magical effect of elevating productivity and morale and reducing turnover rates. Outlined below are some actionable best practices that organizations can adopt to determine fair wages while remaining compliant with Indian labour laws.
1. Benchmarking Wages with Industry Standards
Companies need to compare their salary structure with industry standards to attract and retain talent.
The Best Ways to Do Wage Benchmarking:
- Research industry-specific salary trends: Employers should regularly analyze salary benchmarks based on government reports, job portals, and industry surveys to understand prevailing compensation standards.
- Location matters: Salaries need to match cost-of-living increases within metropolitan and rural areas.
- Consider experience and expertise: Employees possessing specialized certifications, advanced skills, or extensive experience should receive proportionately higher compensation.
- Factor in experience and skills: Even when minimum wages are fixed, it’s crucial to evaluate skill-specific roles. Consulting labour law experts ensures alignment with both legal obligations and collective bargaining agreements.
Why It Matters?
Accurate wage benchmarking helps companies set competitive compensation without violating minimum wage laws by unintentionally underpaying or overpaying workers.
2. Implementing Transparent Wage Policies
Transparent salary structures build trust and reduce confusion or disputes related to wages. Employers should:
- Identify the components of salary (Basic Pay, HRA, DA, Bonuses)
- Post wage policies in employee handbooks or HR portals, or onboarding documents.
- Outline progression paths for increments based on performance and tenure.
- Train employees on how salaries are calculated, such as incentives and deductions.
Why It Matters?
- It prohibits wage discrimination and promotes equality.
- Improves employee satisfaction and retention
- Minimises the risk of legal action for non-disclosure of information about salaries.
3. HR Tech Tools for Payroll Compliance
The solution for accurate wage calculation and compliance in the age of digital transformation lies in HR technology.
How HR Payroll Software Can Help: Key Benefits
- Automates payroll processing and reduces manual errors.
- Ensures salaries meet minimum wage requirements and statutory deductions like EPF, ESI, PT, and TDS. Provides real-time salary reports for audits and decision-making.
- Attendance & overtime tracking: Proves that they get paid fairly for the additional work done.
Best payroll applications for Indian Businesses:
- Zoho Payroll
- GreytHR
- Keka HR
- HRMantra
HR automation tools are helpful to minimize payroll errors, legal risk, and increase wage transparency as well.
4. Regularly Reviewing and Updating Wage Structures
A static wage structure can lead to employee dissatisfaction, attrition, and even legal risks. Employers should:
- Continue to adjust the wage structures yearly in consideration of inflation, government work changes, and sector behavior changes.
- Respond to employee feedback and golden structures.
- Adjust pay appropriately about tenure as they are easily replaced by employees who are paid less.
Why It Matters?
- Regular wage reviews ensure compliance with current laws, reinforce employee loyalty, and reduce attrition by offering fair and competitive compensation.
5. Performance-Based Appraisal & Increment for Equal Treatment
This ensures that both employees feel valued and will drive results. Employers should:
- Set clear and measurable KPIs for salary increments
- Conduct objective performance evaluations at regular intervals.
- Ensure impartiality and fairness in appraisals to eliminate bias and favouritism.
- Recognize and reward top-performing employees with bonuses and promotions.
Why It Matters?
- Promotes good work and excellence in the workplace
- Assists organizations in keeping top talent.
- Decreases the chances of wage disagreement.
Following these practices will allow Businesses to develop a salary structure that is fair, transparent, and legally compliant in 2023 and beyond.
Avoiding Common Wage-Related Legal Dispute Issues
One of the most common issues faced by employers in India under the Labour Laws is concerning Wages. Consequences for not adhering to wage laws can be hefty from fines and lawsuits to reputational harm. Here are the most common pay disputes and how employers can prevent them.
1. Employee Claims of Delayed Wages of Underpayment
Reasons for Underpayment or Late Payment of Salary
- Employers are paying less than the mandated minimum wage.
- Delays in salary disbursement, especially in smaller businesses.
- Overpayment for overtime led to wrong salary calculations.
- Employees receive less than the salary they received due to illegal or unexplained deductions.
How to Prevent Disputes Over Underpayment?
- Always obey minimum wage laws and update wages according to government updates.
- Set up automated payroll to help get salaries paid on time.
- Keep wage agreements explicit in contracts of employment.
- Do not make illegal salary deductions.
2. Unlawful Deductions and Non-compliance with Wage Laws
This often results in employers making baseless salary deductions, which go on to become a legal issue.
Types of Legal Deductions Allowed Under Indian Labor Laws:
- Provident Fund (EPF)
- Employee State Insurance ESI
- Professional Tax (PT)
- Income Tax (TDS)
- Loan recovery (if the employee so agrees)
Reasons an Unsanctioned Salary Cut Can Cause Disputes:
- Random penalties for errors or missed attendance.
- Dedications for company losses or training costs.
- Unlawful recovery of training expenses.
How to Avoid Issues with Salary Deductions?
- All deductions should be pre-approved and duly mentioned in the salary slip and the employee contract.
- Include deduction terms in contracts and payslips.
- Abide by statutory deductible limits and maintain appropriate documentation.
3. Unequal Pay Structures: Discrimination Claims
Causes of Pay Discrimination:
- Different salaries between male and female workers for the same job.
- Pay discrimination based on gender, caste, or geography.
- Disagreements between contract and direct workers are not justified.
Legal Consequences of Wage Discrimination:
- Violation of the Equal Remuneration Act, 1976.
- Include deduction terms in contracts and payslips.
- Lawsuits seeking compensation or penalties.
How To Prevent Pay Disputes?
- Do periodic wage audits for equal pay.
- Standardize pay across job roles.
- Advocate for equal pay for equal work regardless of gender.
4. Legal Remedies and Dispute Resolution Mechanisms
When a wage-related dispute comes up, employers must respond appropriately and lawfully.
What Employers Should Do to Address Wage Issues:
- Internal Grievance Redressal
- Keep an HR department available to resolve employee grievances.
- Incentives to address wage problems internally first.
- Mediation and Arbitration
- Use third-party mediators or conciliators to resolve disputes without litigation.
- Labour Court Filings
- Labour courts can be approached by employees if wage disputes intensify.
- To defend themselves, employers should adduce appropriate wage records, contracts, and payroll records.
Best Practices to Avoid Wage Litigation
- Retain payroll records for 3–5 years at a minimum.
- Draft clear employment contracts outlining wage policies.
- Regularly conduct compliance audits to avoid wage-based infractions.
FAQs on Wage Standards in India
Q1. What is the minimum wage in India?
It varies by state and industry. Employers should refer to official government notifications for updates.
Q2. What are the penalties and consequences for employers for non-compliance with wages?
Fines, back pay orders, license cancellations, and imprisonment.
Q3. How can employers avoid wage disputes?
By conducting regular audits, updating wage policies, using automated payroll systems, and taking legal advice when needed.
Conclusion
Setting fair wage standards is not only a matter of adherence to the law; it is also about developing an environment in which workers are appreciated, encouraged, and compensated consistently for their contributions. Wage relationships are the wages that an organization pays to its employees.
Violations of labour laws expose employers to legal and financial risks through government penalties, labour court filings, and dissatisfaction leading to high attrition rates. By embracing proactive strategies, such as wage benchmarking, transparent salary policies, regular audits, and performance-based appraisals, employers can avoid pitfalls and foster a motivated and legally protected workforce.
As an employer, your employees are your most valuable asset. This means that when employees get paid fairly, they will be more engaging, productive, focused on a goal, and so on. Offering a competitive upfront pay policy is not something you get to interpret differently it is the rule, so if you are a company that follows the wage laws in your country and cares more about offering good pay ahead, you will always be in demand and always have a reassuring candidate move for you.
About Us
Corrida Legal is a boutique corporate & employment law firm serving as a strategic partner to businesses by helping them navigate transactions, fundraising-investor readiness, operational contracts, workforce management, data privacy, and disputes. The firm provides specialized and end-to-end corporate & employment law solutions, thereby eliminating the need for multiple law firm engagements. We are actively working on transactional drafting & advisory, operational & employment-related contracts, POSH, HR & data privacy-related compliances and audits, India-entry strategy & incorporation, statutory and labour law-related licenses, and registrations, and we defend our clients before all Indian courts to ensure seamless operations.
We keep our client’s future-ready by ensuring compliance with the upcoming Indian Labour codes on Wages, Industrial Relations, Social Security, Occupational Safety, Health, and Working Conditions – and the Digital Personal Data Protection Act, 2023. With offices across India including Gurgaon, Mumbai and Delhi coupled with global partnerships with international law firms in Dubai, Singapore, the United Kingdom, and the USA, we are the preferred law firm for India entry and international business setups. Reach out to us on LinkedIn or contact us at contact@corridalegal.com/+91-9211410147 in case you require any legal assistance. Visit our publications page for detailed articles on contemporary legal issues and updates.